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AP Microeconomics

Subjects : economics, ap
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Exists when the production of a good imposes disutility upon third parties not directly involved in the consumption or production of the good

2. Two goods are consumer substitutes if they provide essentially the same utility to consumers

3. When firms focus their resources on production of goods for which they have comparative advantage

4. The output where AVC is minimized. If the price falls below this point - the firm chooses to shut down or produce zero units in the short run

5. The most desirable alternative given up as the result of a decision

6. Factors of production - 4 categories: labor - physical capital - land/natural resources - and entrepreneurial ability

7. The difference between the price received and the marginal cost of producing the good. It is the area above the supply curve and under the price

8. A market structure characterized by a few small firms producing a differentiated product with easy entry into the market

9. Occurs when there is no more incentive for firms to enter or exit. P=MR=MC=ATC and profit = 0

10. The ability to set the price above the perfectly competitive level

11. The more of a good that is produced - the greater the opportunity cost of producing the next unit of that good

12. Measures the cost the firm incurs from using an additional unit of input. In a perfectly competitive labor market - MRC = Wage. In a monopsony labor market - the MRC > Wage

13. Ed = (%dQd)/(%dP). Ignore negative sign

14. The practice of selling essentially the same good to different groups of consumers at different prices

15. A per unit tax on production results in a vertical shift in the supply curve by the amount of the tax

16. Has opposite effect of an excise tax - as it lowers the marginal cost of production - forcing the supply curve down

17. Characterized by many small price-taking firms producing a standardized product in an industry in which there are no barriers to entry or exit

18. Production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient

19. Occurs when LRAC is constant over a variety of plant sizes

20. The downward part of the LRAC curve where LRAC falls as plan size increases. This is the result of specialization - lower cost of inputs - or other efficiencies of larger scale.

21. Pm > MR = MC - which is not allocatively efficient and dead weight loss exists. Pm > ATC - which is not productively efficient. Profit > 0 so consumer surplus is transferred to the monopolist as profit

22. Total revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic

23. Costs that change with the level of output. If output is zero - so are TVCs.

24. The difference between total revenue and total explicit and implicit costs

25. Another way of saying that firms are earning zero economic profits or a fair rate of return on invested resources

26. The imbalance between limited productive resources and unlimited human wants

27. Ei = (%dQd good X)/(%d Income)

28. Holding all else equal - when the price of a good rises - consumers decrease their quantity demanded for that good

29. Holding all else equal - when the price of a good rises - suppliers increase their quantity supplied for that good

30. Two goods are consumer complements if they provide more utility when consumed together than when consumed separately

31. The rate paid on the last dollar earned. This is found by taking the ratio of the change in taxes divided by the change in income

32. Total product divided by labor employed. APL = TPL/L

33. The case where economies of scale are so extensive that it is less costly for one firm to supply the entire range of demand

34. Models where firms are competitive rivals seeking to gain at the expense of their rivals

35. Direct - purchased - out-of-pocket costs paid to resource suppliers provided by the entrepreneur

36. Ed = 8 - infinite change in demand to price change

37. A legal maximum price above which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent shortage

38. Exists if a producer can produce a good at lower opportunity cost than all other producers

39. 0 < Ei < 1

40. The upward part of the LRAC curve where LRAC rises as plant size increases. This is usually the result of the increased difficulty of managing larger firms - which results in lost efficiency and rising per unit costs.

41. Es = (%dQs) / (%dPrice)

42. A legal minimum price below which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent surplus

43. The least competitive market structure - characterized by a single producer - with no close substitutes - barriers to entry - and price making power

44. Costs that do not vary with changes in short-run output. They must be paid even when output is zero.

45. Additional benefits to society not captured by the market demand curve from the production of a good - result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good

46. Exists when the production of a good creates utility for third parties not directly involved in the consumption of production of the good

47. Production inputs that cannot be changed in the short run. Usually this is the plant size or capital

48. Excess demand; a shortage exists at a market price when the quantity demanded exceeds the quantity supplied

49. The additional cost incurred from the consumption of the next unit of a good or a service

50. The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity